Cyprus Revolts Following Troika Demand to Seize Individual Savings

Media reports indicate that Cyprus officials have ordered a delay to the parliament vote on the proposed bailout package and bank levy plan. In addition, banks in the country have been ordered to remain closed until Thursday.

The Guardian is posting ongoing live updates here as developments continue.

The decision to target bank accounts stunned Cypriots, and police sealed off parliament in Nicosia as about 400 people staged a noisy protest outside, aggrieved that their small island of one million people should be singled out for such treatment.

The people of Cyprus were in continued uproar Monday following news over the weekend that the country's ruling government and finance ministers signaled willingness to impose a tax on individual saving accounts in order to secure a $10 billion bailout package from Europe's financial "Troika" - the European Commission, the European Central Bank and the International Monetary Fund.

As the Cyprus Mailexplains, "Under the terms of a deal brokered with euro zone finance ministers on Friday, Cypriot authorities were to impose a 6.7 per cent tax on bank deposits under 100,000 euros and 9.9. per cent on deposits exceeding 100,000 euros."

The news caused panic over the weekend, with many scrambling to ATMs (the banks are closed until Tuesday) trying to withdraw as much of their savings as possible.

The deal, however, still needs approval of parliament and an emergency meeting of ministers was being held on Monday.

Resistance to the plan among leftist parties in the country was critical and fierce.

"Essentially parliament is called to legalise a decision to rob depositors blind, against every written and unwritten law," said Yiannakis Omirou, speaker of parliament and head of socialist EDEK party. "We refuse to subscribe to this."

Faced with a growing public backlash, Cypriot finance ministry officials began discussions with lenders on Sunday to lessen the blow for smaller savers.

A source close to the consultations told the Reuters news agency that authorities were hoping to cut the tax band for smaller savers with less than 100,000 euros to three percent from 6.7 percent.

The rate for deposits above that would then be increased to 12.5 percent from 9.9 percent.

Described as a "take it or leave it" ultimatum given by the Troika to the Cypriot government, Guardian economy columnist Michael Burke said Europeans were looking "on in horror" at the potential raid on taxpayers' bank account.

"It's now become clear," wrote Burke, "the threat to European savers and banks isn't anti-austerity parties but the Troika."

The Cyprus Mailreports the reaction from other parties on the left who oppose the plan:

AKEL leader Andros Kyprianou described Cyprus’ treatment by the troika as “vindictive and neo-colonial,” adding that his party would discuss proposing the island’s exit from the eurozone.

“They are attempting to impose their political options on Cyprus, leading out country and people to conditions that are similar to those in other countries of the European south,” Kyprianou said. [...]

Demetris Syllouris, the chairman of EVROKO, said the government would not have his support on the matter.

“If they have killed us once it does not matter if they kill us a second time. This is my reaction,” he said.

The Green party suggested that the measures included in the decision did not ensure the salvation of the economy.

“On the contrary, the consequences on common people and workers are expected to be tough, adding to the trials this people is already going through,” the Greens said.

“Neither the unprecedented and catastrophic measures would be tolerated nor the humiliation of the Republic of Cyprus and its people,” the EDEK said in a statement.

Approval in Cyprus' fractious 56-member parliament is far from a given: no party has an absolute majority and three parties say outright they will not back the tax. A vote initially planned for Sunday was rescheduled to give more time to build a consensus.

OK, I didn’t see that one coming. With all the problems in Greece, Italy, Spain, and Portugal I wasn’t watching Cyprus. But that’s where the big euro news is this weekend; in return for a bailout, Cyprus is supposed to impose a large haircut — that is, loss — on all depositors in its banks.

You can sort of see why they’re doing this: Cyprus is a money haven, especially for the assets of Russian beeznessmen; this means that it has a hugely oversized banking sector (think Iceland) and that a haircut-free bailout would be seen as a bailout, not just of Cyprus, but of Russians of, let’s say, uncertain probity and moral character. (I think it’s interesting that Mohamed El-Erian manages to write about this thing, fairly reasonably, without so much as mentioning the Russian thing.)

The big problem, however, is that it’s not just large foreign deposits that are taking a haircut; the haircut on small domestic deposits is a bit smaller, but still substantial. It’s as if the Europeans are holding up a neon sign, written in Greek and Italian, saying “time to stage a run on your banks!”

Tomorrow and the days immediately following should be very interesting.

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